How to Transfer a Car Loan to a Family Member

How to Complete a Car Loan Transfer

Here's a step-by-step explanation of how to complete a car loan transfer. Keep in mind that the process might come with more or fewer steps than those outlined here.

1. Contact Your Lender

Your first step is to reach out to your lender.

First, you'll want to ask whether the lender allows a direct loan transfer, meaning the same interest rate, terms and payment schedule can be locked in. Some lenders do permit them, but many don't. A lot of lenders decline to handle loan transfers because of concerns about sticky issues such as the title, registration, insurance and liability.

Also, be sure to inquire about any rules and fees associated with the loan transfer.

2. Submit an Application

Rather than authorizing a direct loan transfer, a lender may be willing to work with a borrower to informally "transfer" a car to a family member (or someone else).

However, this would require the family member to basically seek a new loan. Therefore, the person taking on the transfer typically must submit a loan application. In rare cases, though, a lender might allow a loan to be directly transferred from one borrower to another without requiring a new application.

Transferring a car loan usually means the current borrower must pay off their loan. The current borrower can do this with cash they've got on hand or with money gained from paying off the old loan with money from the new borrower's loan.

3. Go Through Credit Check and Approval

Once the new borrower submits a loan application, they'll go through a credit check and receive final approval for the loan. Transferring ownership of the car can get underway following completion of these tasks.

Because of this, transferring a car loan to a family member may require that you're signing the car over to someone with good credit, or they may face higher interest rates and fees than they'd like.

4. Change Title and Registration

If the lender approves the loan application, the title and registration for the car must be put in the new borrower's name due to the change in ownership. In addition, the new owner likely will need to insure the car in their name and pay any applicable state taxes.

Is Transferring a Car Loan a Good Idea?

Transferring a car loan might make sense in certain circumstances. For example, it might be a good move if the original borrower:

• Faces repossession of the car
• Plans to buy a less expensive car
• Needs the car for only a short period
• Is moving to another country and no longer needs the car
• Usually relies on public transportation to get around
• Has a relative who needs a car

While transferring a car loan may offer some benefits, it's worth noting that it might also come with drawbacks. These might include:

• Higher interest rate: Aside from a higher rate, the new borrower could be stuck with less favorable loan terms and bigger monthly payments.
• Lower credit score: The new borrower's credit score might go down by a few points temporarily because they've applied for new credit. The score might also decrease because the new borrower is taking on more debt.
• Financial burden: This new financial responsibility might cause financial stress for the new borrower.

Alternatives to Transferring a Car Loan

Instead of transferring a car loan, you might consider options such as:

• Selling your car: Finding a buyer for your car, such as an auto dealership, would eliminate the need for someone to take over your car loan.
• Obtaining a cosigner: Although it's not a traditional transfer, you might be able to have someone cosign when the car loan is being refinanced and the cosigner is going to be driving the car. As the new owner, the cosigner would be able to take over the car payments. However, as the original borrower, your name would stay on the loan and you'd need to make car payments if the new owner wasn't able to.
• Refinancing your loan: If you're feeling the strain of making monthly car payments, you might look into refinancing your loan without a cosigner. This might result in a lower interest rate or a longer payoff period, both of which could reduce your monthly payments.
• Pausing your car payments: Some lenders might let you put off making car payments for a certain period. However, the loan will still accrue interest, and you eventually must start making payments again.
• Asking someone to take over your car payments: Have you run into some financial trouble that's making it tough to keep up with your car payments? If so, you might recruit a family member or friend to temporarily make the payments. Just be sure to notify your lender if you've entered into an arrangement like this.

The Bottom Line

Transferring a car loan to a family member can be done. But many lenders won't allow a direct transfer from one borrower to another. Therefore, you may need to come up with an alternative, such as selling your car or refinancing your loan. Regardless of what road you take, it's likely that a credit check will be involved. If that's the case, you or your family member (or both) can obtain your free Experian credit report and FICO^® Score^☉ to see what might stand in the way of loan approval or favorable lending terms.